Friday, December 1, 2017

Recapping as We Head into Year End - What Does the Future Hold?

Most of the action this year in terms of change to the existing monetary system has revolved around various payment technologies and alternative currencies. We have seen virtually no public movement of any kind by central banks and/or the IMF towards any major changes in the global monetary system.

They seem to be in the midst of researching and studying the various new technologies arising in an effort to decide when and if to go forward with their own new versions of digital currencies. Based on the best information available at this time, here is a bullet point list of where things seem to stand.

- we may see the first central bank digital currency arise in 2018. I am keeping an eye on Singapore for that, but Russia or China could always pop up with something because we know they are looking at it and that they are somewhat opaque in terms of releasing news (see latest on Singapore here)

-the IMF seems interested in the new technologies emerging and open to the idea of eventually looking at a digital version of the SDR (the so called IMF Coin). This article in Street.com says don't look for this any time soon (as we have also suggested here).-while central banks and the IMF continue to study things and monitor events, private initiatives to move forward with new virtual currencies and payment systems continue. We reported on the IBM-KlickEx-Stellar launch of a cross border payments system that could be used by central banks as well in the future. We anticipate hearing more from IBM and KlickExin the future.- we also reported on another new technology payments venture that hopes to re-introduce the concept of using gold like money again. Glint CEO Jason Cozens gave us this interview to publish here on the launch date for Glint . Glint allows people to pay for things using gold anywhere MasterCard is accepted.-in a bit of a similar vein, we also now have DragonCard Visa. This allows people to own Bitcoin and also be able to spend it with a debit card. It works a bit differently in that a cryptocurrency exchange handles the conversion from Bitcoin to fiat currency themselves rather than to immediately liquidate the Bitcoin instantly at the point of sale. It will be interesting to see how a large volume of retail transactions might impact the blockchain as at some point someone has to do the conversion between Bitcoin and legal tender currency.
-from time to time we get a chance to "listen in" on some email discussions by some monetary system experts who are always looking at ways to reform the current monetary system in the hopes of improving it. These discussions are quite interesting and there are a lot of creative ideas out there on how best to improve the system and what the best "anchor" for a currency might be. We have covered some of those ideas and archived them here.Looking Forward

The combination of all of the above sources of information leads me to conclude that major changes in the existing monetary system are more likely to unfold gradually over time unless some kind of new major crisis were to disrupt the existing system and force some kind of major change to be implemented more rapidly. This is always possible and should not be ruled out given the world debt situation and the unknown potential impact of derivatives contracts around the world.However, absent such a crisis, I now see a future that may be far less dramatic than many people have expected or even assumed will take place that may unfold gradually. I can envision a world where people actually obtain additional viable choices for where to store their money and how to spend it. Instead of some kind of "top down" edict that tries to force people to accept a new global monetary system based on one new global reserve currency, it may be that the change comes more from the "bottom up" and a more dominant global currency emerges from competition.I think it is reasonable to expect that at some point we will see central bank digital currencies emerge and eventually some kind of digital version of the SDR as well. But I now think these may enter the picture simply as additional new alternatives for people to choose from alongside existing available choices. Gold has always been an alternative option and now Bitcoin seems to have joined that category. Technology like Glint recently introduced allows gold to function more like the other currency choices available so that people can easily access it and spend it if desired.Picture the idea of future world where you can open an account in your own country with your own national currency (say US dollars for example). Once you fund this account, you can then move the funds between major fiat currencies in real time for a reasonable fee. Or you can buy gold that you can spend just like these currencies for the same fee. But now add on the option of a digital version of the major currencies issued directly from central banks (lets call those e-dollars in the US backed by the Fed, e-pounds in the UK, etc). On top of all that lets add on some "Real SDR's" issued and backed by the IMF using new underlying digital technology (blockchain or otherwise). What if all those options were available to you from one app in one account on a mobile phone? You could diversify and hedge your money right on your mobile phone or even opt out of the system into gold very quickly if you wanted to do that.And if you must have Bitcoin, DragonCard Visa (mentioned above) plans to offer that option as well.Instead of a world where someone is trying to force you to use one currency like many people have expected or feared, what if the world moves in the opposite direction?What if people are offered all the above choices and then they choose which ones emerge as the cream of the crop based on such things as their ability to easily meet their payment needs, ability to hold their purchasing power, and ability to help keep global imbalances in check between nations? Such a system might work very well and also provide incentive for everyone issuing legal tender currencies to be more disciplined to make sure their currency stays competitive with the other alternatives people can choose. If people can "vote with their money" on a mobile phone in real time, everyone has to stay on their toes to garner their market share. With financial inclusion around the world, the pie could also grow and provide plenty of market share for the various currency alternatives to thrive. The best ones should rise to the top in a natural process as people "vote" on what works best for them by choosing from the options available.I see that world as being at least as likely as the one where some official authority tries to impose a new currency and monetary system in "top down" fashion. But how would another major global financial crisis change the picture? As always, time will tell us what will actually happen and that is what really matters for the average person trying to make personal financial decisions. The goal here is to try and cover what actually happens and inform readers of the various ideas out there for monetary system change in the future.

-------------------------------------------------------------------------------------------------------------------Added note for news events 4:15pm:Whenever there is news that might impact market stability like the news today that a former Trump official pled guilty to lying to the FBI, it is natural to ask if something like this could lead to any kind of major market disruption or impact systemic stability. My reaction based on the information known at this time is that it is not likely. The news today is not real surprising given what was already known about Flynn and at this time not likely to impact the Administration significantly. Even if the worst case scenario were to unfold and President Trump left office for some reason, I doubt markets would be all that impacted long term. The VP would take over and not much change in policy would be likely. The passage of the tax reform bill is actually more likely to boost markets and perhaps GDP if it works as intended. So none of the events of today seem likely to be any kind of trigger for a major market disruption or systemic crisis at this time. Also, it is doubtful that the upcoming deadline to keep the government running will be a problem. They won't let that happen despite some drama leading up to the deadline. Other than North Korea, I do not see anything on the horizon with the likely potential to create a systemic stability problem.

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